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The Business Case for Financial Education- Personal Financial Wellness and Employee Productivity

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for Financial Education- Personal Financial Wellness and Employee Productivity E. Thomas Garman Presented to The Conference Board Atlanta and San Diego – PowerPoint PPT presentation

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Title: The Business Case for Financial Education- Personal Financial Wellness and Employee Productivity


1
The Business Case for Financial Education-
Personal Financial Wellnessand Employee
Productivity
  • E. Thomas Garman
  • Presented to
  • The Conference Board
  • Atlanta and San Diego
  • 1998

2
Introduction
  • The majority of financial education programs are
    traditional, narrowly focused retirement
    education
  • Smart employers are broadening their
    perspectives about financial education

3
Smart Employers
  • Want to help workers make good decisions about
  • Investment choices within employer-sponsored
    retirement plans
  • Other employer-furnished fringe benefits
  • Personal budgeting
  • Are helping workers with money problems learn to
    overcome such obstacles so they can fully fund
    their retirement plans

4
The Rationale for Comprehensive Financial
Education Is Strong
  • What if someone promised you - the employer -
    a plan to achieve the following
  • increased worker productivity
  • reduced absenteeism to take care of personal
    financial matters
  • reduced HR administrative costs
  • increased participation in and contributions
    to retirement plans

5
  • - reduced social security payroll taxes
  • - reduced stress over financial matters and
    stress-related illnesses
  • - fewer accidents
  • - improved use of and satisfaction with
    employer-provided fringe benefits
  • - reduced hr administrative costs
  • - reduced turnover

6
  • - reduced pressure to increase salaries
  • - increased morale and loyalty
  • - increased number of worker retirements on
    time, rather than delayed
  • - reduced exposure to future litigation based
    upon fiduciary liability as fewer
    retirees have financial problems
  • - a positive return on every dollar invested
    in comprehensive financial education

7
Research findings are promising, although more
research partners are needed to definitively
prove the case for comprehensive financial
education
8
Research by Joo Shows Financial Wellness and Key
Measures of Work Productivity Are Positively
Related
  • Those with poor financial wellness are
  • more likely to be
  • Frequently absent from work
  • Receive poor performance ratings
  • Spend excessive time at work dealing
    with personal financial problems
  • Experience a decline in job productivity from
    one year to the next

9
  • Workers That Employers Love -
  • Those with Good Financial Wellness
  • Come to work
  • Receive high performance ratings
  • Use a minimum of time at work attending to
    personal financial matters
  • Enjoy consistent or increasing job productivity

10
Additional Joo Conclusions
  • The likely first year return on investment for
    financial education that improves the personal
    financial behavior and wellness of a worker is
    about 400
  • The potential return comes from fewer absences,
    less work time spent on dealing with personal
    financial matters, and increases in job
    productivity

11
Traditional and Narrowly Focused Retirement
Education Programs Have Limited Effectiveness
For many employers, retirement plan participation
rates have reached a plateau.

12
Some Workers Will Not or Cannot Contribute to
Their Retirement Plans
  • Two reasons exist
  • 1. Some workers have money problems and
    cannot afford to save for retirement
  • 2. Some workers are not convinced that they
    should save for retirement

13
Employers Have Questions About What More to Do
in Financial Education
  • What would it take to get the participation
    rate higher?
  • What would it take to help workers change
    their asset allocation to better diversify their
    investment portfolios?
  • How much would a comprehensive financial
    education program cost?
  • Does financial education work?

14
  • Can a financial education program be utilized as
    a recruitment tool?
  • Would expenditures on financial education result
    in a positive return on investment?
  • Can financial education be utilized as a
    retention tool?
  • What numbers do I need to convince top
    management that more money should be
    committed to a comprehensive financial education
    program?

15
The Cost of Providing Only Retirement Education
Is Horribly High
  • Not all workers are secure in their money
    matters
  • A full 2/3 of Americans say they have trouble
    paying their bills and worry about money
  • 75 of Americans report that they recently faced
    at least one significant financial problem

16
Financial matters and financialstress affect not
only an individuals personal and family life,
but also a persons work life.
  • Approximately 15 of workers in the U.S. are
    currently experiencing stress from poor
    financial behaviors to the extent that it
    negatively impacts their productivity.

17
Poor Financial Behaviors Result in Extremely
High Costs Incurred by Employers
  • 1. Absenteeism
  • 2. Tardiness
  • 3. Fighting with co-workers and
  • supervisors
  • 4. Sabotaging the work of co-workers
  • 5. Job stress
  • 6. Reduced employee productivity

18
  • 7. Lowered employee morale
  • 8. Loss of customers who seek better
    service
  • 9. Loss of revenue from sales not made
  • 10. Accidents and increased risk taking
  • 11. Disability and worker compensation
    claims
  • 12. Substance abuse

19
  • 13. Suicide and murder
  • 14. Increased use of available health
  • Care resources by the employee and
    relatives
  • 15. Thefts from employers
  • 16. Loss of security clearance
  • 17. Nondeployment of employee to
    an overseas operation

20
  • 18. Lack of employee focus on the strategic
    goals of the employer
  • 19. Greater use of EAP services, including
    those for spouse and child abuse
  • 20. Employer time to deal with poor financial
    behaviors of employees
  • 21. Loss of trained personnel

21
Research by the Military Family Institute
concludes that the direct and indirect costs to
the Nnavy for poor personal financial behaviors
of workers is between 208 and 294 million
annually
  • The cost to the Department of Defense, an
    employer of 1.4 million, is about
    1 billion annually

22
New Research by Virginia Techs Joo Reveals
  • 54 of average income workers in a sample of
    white-collar occupations are dissatisfied with
    their financial wellness
  • 30 feel they are always in financial
    trouble and 35 find it hard to pay bills
  • 51 worry about how much they owe
  • 44 do not set aside money for retirement
  • 60 do not have enough money set aside to
    live for longer than 2 months if they
    lost their jobs

23
Reasons for Not Voluntarily Contributing to an
Employer-Sponsored Retirement Plan
  • 49 - do not have enough money
  • 34 - do not know enough about the retirement
    plan

24
There is a growing national movement to offer
financial education in the workplace, partially
because so many workers are going to have extreme
difficulty finding money for retirement
25
Smart Employers Offer Comprehensive Financial
Education That Helps Workers Make Informed
Decisions About
  • Employer-sponsored retirement plans
  • Other employer-furnished fringe benefits
  • Credit and money management
  • Consumer protection rights

26
Smart Employers Realize Financial Education
Is a Key Factor in Recruitment and Retention
  • The best workers are typically
  • in control of their personal finances
  • contribute to their pension plans
  • These workers are happier in their
  • financial lives and it shows in their work

27
Smart Employers Will Do Two Things
  • 1. Provide employees with comprehensive
    financial education
  • 2. Identify and help workers with money
    problems overcome obstacles to fully fund
    their retirement plans

28
How Can Employers Help Workers With Money
Problems?
  • Smart employers provide workers with non-profit
    budget and credit counseling and basic
    information on consumer protection laws
  • Why?
  • Such information empowers people to get
    out of difficult situations and avoid them in
    the future

29
Two-thirds of workers with financial problems can
improve their financial situations - with
professional help - within about 12 months, and
begin to save for retirement
  • Yet, fewer than 1/5 of large employers are
    offering financial education that includes
    emphasis on personal budgeting and credit
    management

30
The Best Employers Will Meet and Succeed at
Two Challenges
  • 1. Move from offering workers an average
    financial education program to providing a model
    program
  • 2. Partner with other organizations that are
    currently helping people resolve money problems

31
Employers Should Know That
  • It is not necessary for employers to get into the
    credit counseling business
  • Well-qualified, non-profit national providers of
    information on effective management of money and
    credit exist
  • Other experts can help workers avoid consumer
    rip-offs and frauds

32
1 Finding Money for Retirement
  • After receiving comprehensive financial
    education, a typical 45-year old married
    dual-earner couple with a family can find over
    4000 a year to fund their retirement plans
  • 300 a month by wisely choosing among
    employer-furnished fringe benefits
  • 80 a month by gaining control of consumer credit
    and managing money more effectively
  • 10 a month by avoiding consumer rip-offs and
    frauds

33
2 Finding Money for Retirement
  • After receiving comprehensive financial
    education, a typical 35-year old single worker
    can find over 2,500 a year to fund his/her
    retirement plan
  • 170 a month by wisely choosing among
    employer-furnished fringe benefits
  • 60 a month by getting in control of consumer
    credit and managing money more effectively
  • 10 a month by avoiding consumer rip-offs and
    frauds

34
Results of Implementing a
Comprehensive Financial Education Program
  • Retirement education helps workers save for their
    retirements
  • Comprehensive financial education works even
    better!

35
Employers Reap the Benefits
  • Very high participation rates in 401(k)
    plans (90 percent range)
  • Reduced net cost of operations

36
Workers Gain Benefits, Too
  • Increased financial wellness
  • Lower household debt-to-income ratio
  • Increased self-esteem and improved attitude about
    work
  • Increased satisfaction with employer-provided
    fringe benefits
  • Increased capability to participate in and
    contribute to retirement plans
  • Increased saving for retirement

37
What Is the Cost of Providing Comprehensive
Financial Education?
  • Between 75 and 455 annually
  • Retirement planning (30-275)
  • Other employer-furnished fringe benefits
    (25-40)
  • Credit and money management (10-20)
  • Consumer rights
    (10-20)

38
Return on Investment for
Comprehensive Financial Education
  • Research shows that
  • it ranges from 31 to 101,
  • depending upon a number
  • of factors

39
An Example Where the Benefit-cost Ratio Is 31
  • The employer gains 3.00
  • in value for every 1.00
  • spent on a comprehensive
  • financial education program
  • for workers

40
Situation
  • - 1,000 workers. Average salary of 40,000
  • - 60 participation rate in the 401(k) plan
  • - 20 participation rate in the pre-tax health
    and dependent care programs
  • - 15 experience personal financial difficulties
    to the extent that it negatively affects their
    job productivity
  • - 200,000 (or 200 per worker) invested in a
    comprehensive financial education program

41
Results
  • 1. 125,000 - increased job productivity
  • from 100 workers who resolved money
  • problems
  • 2/3 of workers who formerly had
  • money problems (150 workers x 2/3
  • 100) improved their situations and job
  • productivity by 15 minutes per day
  • 15 minutes 3.13 of one workday
  • x 40,000 salary 125.20 savings
  • per worker x 100 workers

42
  • 2. 80,000 - Reduced absenteeism
  • from the same 100 workers who no
  • longer take time off work to attend to
  • personal financial matters
  • 2/3 of workers who formerly had
  • personal money problems (n100)
  • now do not take 5 days off each year
  • to attend to money matters
    800 a week x 100 workers

43
  • 3. 12,000 - Reduced administrative time to
    process wage garnishments, requests for payroll
    advances, and 401(k) loans for the same 100
    workers who formerly had personal money
    problems - 120 x100 workers

44
Important!
  • The entire 200,000 cost of the financial
    education program already has been returned to
    the employer based solely upon the gains from
    the 100 workers who resolved their
    personal money problems
  • In fact, the employer is already 17,200
    ahead!

45
4. Increased job productivity from 200
workers who formerly did not participate in the
employers retirement plan and now do
contribute 5. Increased job productivity
from 150 workers who increased their
contributions to retirement plans
46
  • 6. Increased job productivity from the majority
    of the remaining workers - 400 of 650 - who
    participated in the financial education program
  • 7. Reduced social security payroll taxes on
    employers because 500 more employees utilize
    pre-tax health and dependent care

47
  • 8. Reduced stress-related illnesses
  • from alcohol and other substances
  • 9. Reduced premiums for health care
  • 10. Fewer accidents
  • 11. Improved use of and satisfaction with fringe
    benefits

48
  • 12. Reduced human resource administrative costs
  • 13. Reduced turnover
  • 14. Reduced pressure to increase salaries

49
  • 15. Increased morale
  • 16. Increased acceleration of employee
    retirements
  • 17. Reduced exposure to future litigation

50
A Positive Return on Dollars Invested in
Comprehensive Financial Education
  • This illustrative 31 ratio is calculated by
    dividing the 651,050 in benefits by the 200,000
    cost of the financial education program
    (651,050/200,000)
  • Note that comprehensive financial education is
    less expensive and more effective than the
    alternative of offering workers a 3 match

51
What Is Virginia Techs Personal Finance
Employee Education Effort?
  • The mission of the PFEE outreach effort is to
    host national conferences that demonstrate model
    financial education programs which motivate and
    enable workers to overcome obstacles to fully
    fund their retirement plans.

52
  • At the time of this speech, Garman was Professor
    and Fellow, Center for Organizational and
    Technological Advancement, and Director of the
    National Institute for Personal Finance Employee
    Education, Virginia Tech, Blacksburg, VA 24061.
    Garman retired in 2000 as Professor Emeritus at
    Virginia Tech. E. Thomas Garman, Distinguished
    Scholar and Director of Educational Services,
    InCharge Institute of America, 1768 Park Center
    Drive, Suite 400, Orlando, FL 32835 E-mail
    tgarman_at_incharge.org Phone 407-532-5883 Fax
    407-532-5750 Web InCharge.org
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